We asked 1,065 Top 10 University students to answer these high school financial education questions, and they got an average of 51% right.
Check to see how your financial smarts stack up.
The 50/30/20 Rule says you should put 50% of your take-home pay toward your needs, 30% toward your wants, and 20% toward your savings or investments.
It provides a clear framework for budgeting that helps people find a balance between their immediate needs, their lifestyle preferences, and both short-term and long term goals.
An emergency fund should be enough to cover 3-6 months of your essential living expenses.
An emergency savings fund is a crucial safety net that individuals and households should have in place. It's designed to provide relief in unexpected situations such as medical emergencies, job loss, car repairs, or any other unforeseen expenses.
True!
Compound interest is the interest earned on both the original principal and any previously earned interest. Simple interest is only applied to the amount of your original principal. Because of this, compound interest always results in a higher total amount when compared to simple interest--because you're earning interest on top of interest!
The Rule of 72 is a simplified formula that calculates how long it will take for an investment to double in value, based on its rate of return.
As an example, if your account earns 7 percent interest per year, divide 72 by 7 to estimate the number of years it will take for your money to double. In this case, it will take approximately 10 years. (72/7 = 10.29)
It is recommended that you use under 30% of the total credit you have available.
It is generally recommended to keep your credit card utilization under 30%. For example, if you have a credit limit of $10,000, you should try to keep your balance below $3,000. A high credit utilization ratio can signal to lenders that you may be a risky borrower.
Payment history (a.k.a. whether you pay your bills on time) is the largest contributing factor to your credit score.
35% of your credit score is determined by your payment history, so it's critical to make sure you don't miss payments or make late payments.
APR includes both the interest rate and any additional fees associated with the credit card.
The APR on a credit card is the cost of borrowing money using the credit card. It includes the interest rate on outstanding balances and any other fees associated with the card, such as the annual fee.
Filing for bankruptcy is not the best way to address credit card debt because filing requires you to include all of your debts. Because bankruptcy negatively affects your credit score for several years after you file, a more practical way to tackle credit card debt might be to use a debt management or debt settlement program.
A premium is a fee you pay every month to be covered by insurance. A deductible is the out-of-pocket costs you must cover before your insurance kicks in.
Premiums and deductibles are related: The higher the premium, the lower the deductible. The lower the premium, the higher the deductible. It is up to each individual to choose which one they are comfortable paying more for based on their level of risk.
An HYSA (High Yield Savings Account) typically has a higher interest rate than a regular savings account.
HYSAs have great benefits, but there may also be limitations associated with these types of accounts. Some might not allow you to make as many withdrawals as regular savings accounts, and they may not have a brick-and-mortar location associated with the account.
A borrower will pay private mortgage insurance when they take out a conventional mortgage loan with a down payment of less than 20%.
Private mortgage insurance (PMI) is a type of mortgage insurance borrowers are typically required to buy when they take out a conventional mortgage loan with a down payment of less than 20% of the home's purchase price. Private Mortgage Insurance protects the lender in case the borrower defaults on payments, dies, or otherwise cannot make their regular mortgage payments.
Stocks are partial ownership in a corporation. Bonds are loans to a company or the government.
Stocks historically have a higher return than bonds, but are considered higher risk. Bonds pay a fixed interest rate over time, but are likely to have a lower return than stocks.
An IRA is a tax-deferred retirement savings account.
There are two main types of IRAs. A Roth IRA allows you to contribute taxed dollars to the account; when you withdraw the money during retirement, you'll do so tax-free. A Traditional IRA allows you to contribute pre-tax dollars without being taxed on its growth until you withdraw the money (when you retire).
Experts recommend you should have 1x your salary saved for retirement by the time you turn 30.
In addition, experts recommend that you have 3x your salary saved by age 40, 6x your salary saved by age 50, and 8x your salary saved by age 60. Don't forget--compound interest is here to help. Start early!
The amount of taxes people pay is primarily determined by their gross income.
The specific sources and the total amount of income a person earns can push them into different tax brackets, affecting how much they pay in taxes.
The loan term refers to the length of time you have to pay back a loan. The loan term can vary depending on the type of loan (ex: 6 months, 12 months, 24 months).
Debt refers to the total amount of money that an individual owes to a lender (someone who lends money). This can include credit card balances, loans, and other forms of borrowed money.
Net pay or take-home pay refers to the amount of money an employee receives after all deductions have been subtracted from their gross pay. Deductions include taxes, social security and medicare contributions, retirement account contributions and health insurance premiums.
The 50/30/20 rule is a guideline for budgeting that says you should put 50% of your take-home pay toward needs, 30% toward wants, and 20% toward savings.
A fixed expense, also known as a regular expense, is a recurring cost that remains relatively constant over time. These expenses don’t fluctuate significantly from month to month, making them predictable and easier to budget for.
Needs are things that you must have to survive. Wants are things that are nice to have but you can actually live without.
When you've been working in the same job or type of job for many years, you accumulate knowledge and experience. Colleagues may start to rely on your expertise .
If you want to buy a new sneakers in six months, and they cost $60, you would have to save $10 a month to have $60 in 6 months: $60/10 months = 6 months.
A salary is a fixed amount of money you earn on a regular basis for doing a job. It's usually paid monthly or bi-weekly (every 2 weeks).
Investing in stocks means buying a small piece of a company, called a share. When you buy shares of a company's stock, you become a part-owner of the company. As the company grows and makes a profit, the value of your shares can increase, allowing you to make money.
The government collects money called taxes to pay for things like roads, schools, hospitals, and police. When you work at a job, the company takes some money from your paycheck to give to the government for these things. The amount taken depends on how much money you earn at your job and any special rules that say how much you should pay.
A budget is a plan for your money. It helps you decide how much you should spend, save, and sometimes even donate. It helps you keep track of your finances.
Leroy can put his money in a savings account at the bank to earn interest and watch his money grow. A savings account is a special type of account where the bank gives him a little extra money called "interest". The more money Leroy saves in his savings account, the more interest he will earn over time.
Investing means using your money to buy something with the hope that it will grow in value over time. When you buy shares, you're becoming part-owner of that company. You can make money if the company does well and its value goes up.
When you own stocks, some companies pay you a share of their profits, called dividends, which can provide you with additional income. People can also make money by selling the stocks for a higher price than they paid for them.
When you use a debit card, the money comes directly from your bank account. It's like spending the money you already have, so you can't spend more than what's in your account. However, with a credit card, you can use the card to buy things even if you don't have the money right away. The credit card company lets you borrow money to pay for your purchases, but you have to pay them back later.
A credit score is a numerical rating that determines how well you handle money. It shows if you pay back what you borrow on time and if you have a lot of debt.
When you earn money, the government asks for a certain amount of it, called taxes. This money helps the government provide services for everyone, like schools, roads, and hospitals. How much you pay is based on how much money you make using a math formula.
